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China’s U.S. Exports Tumble as Tariffs Bite

China’s exports to the U.S. shrank by more than one-fifth last month, hit by heavier tariffs, underscoring the urgency for Beijing to resolve trade friction with Washington.

Chinese shipments to the U.S. slumped nearly 22% in September from a year earlier, accelerating from a 16% decline in August, data from the General Administration of Customs showed Monday. The U.S. decline was a major factor, along with a slowing global economy, in the 3.2% drop in total exports in September. That compared with August’s 1% decrease and was slightly worse than economists’ expectations.

High-level trade talks between China and the U.S. in the past few days yielded a truce. President Trump said the U.S. would shelve a planned increase in tariffs on $250 billion worth of Chinese goods in return for China’s assurance it would buy agricultural products from the U.S. worth $40 billion to $50 billion. The outcome was seen as something of a win for China as it allowed Beijing to postpone action on concessions it doesn’t want to make.

The thaw in tensions lifted market sentiment, with Chinese stock markets surging by more than 1%, though many economists remained cautious about the impact of the partial deal and the outcome of future trade negotiations.

The latest trade agreement is unlikely to help with China’s trade outlook, said Larry Hu, an economist with Macquarie Group Ltd., pointing to slower global economic growth as the main culprit in the weakening of China’s exports.

“The mini trade deal was aimed at damage control, or stop things from getting worse,” he said. “It’s unrealistic to expect Chinese trade or the global economy to recover any time soon.”

Mr. Trump and Chinese President Xi Jinping could meet and sign the first phase of a deal in mid-November, at the Asia-Pacific Economic Cooperation summit in Chile. The U.S. hasn’t made a decision on the planned December tariffs on $156 billion in Chinese goods. Beijing will likely argue hard for the U.S. to remove that round, too.

While acknowledging the impact of the trade friction with the U.S., a spokesman for China’s customs authority, Li Kuiwen, said China is hopeful about advancing bilateral ties as the talks continue.

“We expect Sino-U.S. trade to be as sunny as today’s weather and to develop further in a healthy way,” Mr. Li said.

The partial deal probably won’t alleviate the main challenges facing Chinese exporters, as existing U.S. tariffs and a further slowdown in global growth will keep exports subdued in the coming quarters, economists at Capital Economics said in a note to clients.

Shipments to China’s two largest trading partners also softened last month. Exports to the European Union grew only 0.12% from a year earlier, slowing from 3.2% in August. Shipments to Southeast Asian countries rose 9.7%, also cooling from 11% growth in August.

Meanwhile, lower exports and stubbornly sluggish domestic demand contributed to a fifth straight monthly drop in Chinese imports. Softer exports tend to weigh on China’s imports as many imported goods are used to make export products.

Imports slid 8.5% on year in September, a bigger decline than economists projected and extending August’s 5.6% drop. China’s imports from the U.S. slipped 15.7% on year in September, narrowing from a 22.3% decline in August, the customs data showed.

Due to the sharp drop in imports, China’s overall trade surplus widened to $39.65 billion in September, from August’s $34.8 billion surplus. Economists had expected a $34.05 billion surplus.

Chinese authorities started 2019 with a burst of stimulus efforts, including tax cuts and increased lending to small businesses. Policy makers have since refrained from flooding the economy with excess cash and easing property controls for fear of stoking asset bubbles and driving up debt levels. It has encouraged local governments to issue more bonds to fund infrastructure construction.

Beijing will now probably need to step up policy-easing measures, as it interprets weak imports as an indicator of worsening domestic demand, said Mr. Hu of Macquarie.

“It’s just a matter of when and how much they want to stimulate more,” he said.
Source: Dow Jones

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